British pound plunges to its lowest level against US dollar since 1985

The British pound on Wednesday plummeted to its lowest level against the U.S. dollar since 1985.

Sterling fell to $1.1407 in afternoon trade in London — a level not seen in 37 years — as investors responded to the U.K.’s darkening economic landscape with a new prime minister at the helm.

It was last seen trading down 0.4% at $1.1469.

British Prime Minister Liz Truss was officially appointed Tuesday after succeeding Boris Johnson in a closely fought leadership contest. She inherits an economy in the throes of its worst cost-of-living crisis in a generation, with inflation hitting 10.1% in July.

The pound dropped to $1.1444 in the hours following her victory Monday, but it has since slipped lower as traders comprehend the fallout from her appointment.

The last time sterling fell to $1.14 was briefly in March 2020 and the Brexit result in 2016. The level of $1.1407 has not been seen since 1985, under Margaret Thatcher’s government.

The British pound has been hammered over recent months by surging inflation — currently at the highest level among all G-7 nations — and the prospects of a looming recession. The appointment of Truss, who is widely expected to cut taxes and boost borrowing, has added to U.K. debt market concerns.

-- Risk of a sterling crisis --

Deutsche Bank warned Monday that the risks of a “sterling crisis” should not be underestimated, adding that investors will now be closely awaiting Truss’ policy announcements, which are expected in the coming days.

“With the current account deficit already at record levels, sterling requires large capital inflows supported by improving investor confidence and falling inflation expectations. However, the opposite is happening,” Deutsche Bank FX Strategist Shreyas Gopal said in a note.

It comes as the U.S. dollar has soared this year amid global recession fears and the Federal Reserve’s aggressive interest rate hikes. Sterling is currently down more than 15% against the greenback this year.

Against the euro, the pound was also down almost 1% on Wednesday at 86.83. However, sterling has held up better against the single currency, down just 3% for the year.

The lowest level sterling has traded against the greenback was $1.052 on Feb. 26, 1985, according to Refinitiv data.

SOURCE: CNBC